Consolidation to accelerate in Australian IT services market

Mergers and acquisitions among Australia’s
privately-owned IT organisations are
expected to take off this year, as companies
solidify their market position and expand capabilities
in the brighter economic environment.

A collection of local systems integrators, including
Klikon, ASG and Accucom, are looking to buy complementary
organisations as a way of accessing new skill
sets, geographic reach and customer bases. Several
industry pundits are also predicting further consolidation
as IT providers prop up their services capabilities
to address new technology usage trends such as cloud
computing and managed services.

According to IDC corporate advisory manager, Rod
Hore, who assists IT services organisations source and
secure acquisitions, the economic downturn slowed
mergers and acquisitions activity and forced organisations
to look inwards. Lower profit margins also pushed
the value of private and public companies down, making
it harder for organisations to sell or come to terms.

While companies are still largely risk-averse, the
brighter market conditions should see merger and
acquisition discussions accelerate in 2010, Hore said.

He tipped privately-owned services organisations
would be the first cabs off the rank, followed by ASXlisted
organisations. As proof, Hore cited an increase
in discussions over the past couple of months.

“From June, I expect more positive business
conversations than previously – business leaders are
more interested in services conversations about the
future,” he said.

The number one priority was to tap into more
annuity-based revenue streams, Hore said. He ruled
out significant investments into new technologies
for at least two years.

“People are still hesitant – they are looking for
annuity streams, rather than speculative IP,” Hore
said. “Today, companies are focusing around pillars of
profitability – they are being practical and pragmatic. I
think the near-death experience is still real, but in three
years’ time, they’ll start investing in new ideas.”

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